Google to pay $185 million UK back taxes, critics want more

LONDON (Reuters) - Google has agreed to pay 130 million pounds ($185 million) in back taxes to Britain, prompting criticism from opposition lawmakers and campaigners who said the “derisory” figure smacked of a “sweetheart deal”.

The neon Google sign in the foyer of Google's new Canadian engineering headquarters in Kitchener-Waterloo, Ontario January 14, 2016. REUTERS/Peter Power

Google, now part of Alphabet Inc (GOOGL.O), has been under pressure in recent years over its practice of channeling most profits from European clients through Ireland to Bermuda, where it pays no tax on them.

In 2013, the company faced a UK parliamentary inquiry after a Reuters investigation showed the firm employed hundreds of salespeople in Britain despite saying it did not conduct sales in the country, a key plank in its tax arrangements.

Google said late on Friday the 130 million pounds would settle a probe by the British tax authority, which had challenged the company’s low tax returns for the years since 2005. It said it had also agreed a basis on which tax in the future would be calculated.

“The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift,” a Google spokesman said in a statement.

The deal comes as governments around the world seek to clamp down on multinational companies shifting profits overseas to reduce their tax bills.

EU competition authorities have investigated arrangements used by Amazon (AMZN.O) and a unit of Fiat (FCAU.N) in Luxembourg, Apple (AAPL.O) in Ireland and Starbucks (SBUX.O) in the Netherlands, and may start new probes.

British finance minister George Osborne welcomed the deal, saying on Twitter it reflected new rules that he had introduced, but others were less impressed.

John McDonnell, finance spokesman for the opposition Labour party, said the tax authorities needed to explain how they had settled on the figure of 130 million pounds, which he described as relatively insignificant.

“It looks to me ... that this is relatively trivial in comparison with what should have been made, in fact one analysis has put the rate down to about 3 percent, which I think is derisory,” he told BBC Radio on Saturday.

“This looks like another sweetheart deal.”

Prem Sikka, professor of accounting at Essex University, agreed.

He said that for a company that enjoyed UK turnover of around 24 billion pounds over the period and margins of 30 percent, the settlement represented an effective tax rate in the low single digits for Google.

“This is a lousy number and we need to know more,” he said. Richard Murphy, a tax expert who has advised the Labour leader, Jeremy Corbyn, on economic policy, said the deal was “a disaster” and that, based on the turnover and margins Google enjoyed, “They should have been paying 200 million pounds a year.”

Between 2005 and 2013, Google had UK turnover of 17 billion pounds and its main UK unit reported a tax charge of 52 million pounds, filings showed. In 2014, it had UK revenues of around 4 billion pounds, according to its annual report, but has not yet published its UK tax charge.

(This version of the story corrects spelling of Prem Sikka)

Additional reporting by Steve Trousdale in San Francisco and Kate Holton in London; Editing by Dale Hudson